Mr. James is the director of the University of Pittsburgh Health Policy Institute. Ms. Hughes is a JD/MPH student at Pitt.

The evolving U.S. health system has reached an important juncture. It’s not the Affordable Care Act (ACA) clearing its latest legal hurdle to remain the law of the land, or even the 50th anniversary of Medicare. It’s certainly not our population becoming the healthiest in the world. Although we spend far more on healthcare than any other nation, we still rank 42nd in life expectancy at birth and last among a number of other developed nations in efficiency, quality and access to care. The critical point our health system has quietly reached is--for the first time--government-sponsored programs now make up the majority of healthcare spending in the U.S.

How did we get here?

The role of the government in the U.S. health system has been increasing for decades.

National health care spending, 1960-2023

Yes, it was the ACA that pushed us over the 50% mark, but only in our well-established tradition of filling private gaps with taxpayer-funded public programs. Historically, our country has relied on employers as the primary source of health insurance. To avoid labor strikes after World War II, we exempted employer-sponsored insurance (ESI) from wage controls and income taxes. Over time, we have embedded this war-time tax policy to support the purchase of private insurance. Today, nearly 170 million people (about half of the country) get health insurance through an employer. This approach has left some significant gaps in U.S. health coverage--gaps which we have filled through the creation of government programs.

In the 1960s, as the elderly population grew and it became clear that they could not afford to pay for needed care, the Medicare program was established. It now covers 54 million elderly and disabled Americans. At the same time, we created a so-called “safety-net” program, Medicaid, which provides health coverage for pregnant women, families with children, disabled persons and low-income adults. Medicaid and the Children’s Health Insurance Program (CHIP) now cover over 70 million children and adults, and to date, the ACA’s Medicaid expansion has added 11 million persons to the program.

The true scope of today’s Medicaid program is not well understood. Medicaid is the largest single payer for births, maternity care, mental health services and long term care in the U.S. In some graying states like Pennsylvania, Medicaid covers more than 65% of all nursing home stays.

Additional government-sponsored programs provide either health care or health insurance to veterans, military families, federal employees, uninsured children, American Indians and Alaskan Natives, refugees who resettle in the U.S., individuals with substance abuse and mental health issues and inmates in federal and state prisons. The federal government and states also invest billions in biomedical research, public health and prevention measures and healthcare professional education.

The figure below outlines the current government-sponsored health programs in the U.S., who is receiving these benefits, and how much each costs.

Tax exemption forbusinesses and Individuals with private insurance from their employer (ESI)

Employers and employees can deduct the cost of private health insurance from income and payroll taxes

169 million

$250 billion

Individuals under 400% FPL are eligible to receive premium and cost sharing subsidies

Premium tax credits help lower the cost of purchasing private insurance on a state-based exchange, and subsidies reduce out of pocket costs

8 million enrolled with 6.7 million eligible for assistance*

$17 billion*

All Americans are impacted by investments in public health, research, and infrastructure

Public health includes activities can detect and prevent disease outbreaks; federal government also invests in biomedical research, construction of and improvements to structures needed to deliver care, and equipment

315+ million

$101 billion

Expenditures and enrollment based on 2013 data unless otherwise noted. Total populations impacted by programs are not exclusive. (*2014, **2015, ***2011)

Who is paying for it?

In addition to government-sponsored programs, health spending comes from a variety of other sources, including consumers and patients, businesses and private insurance companies. The chart below breaks down the major sources of payment for healthcare in the U.S.

Source of payment in U.S. health care

The amount of health spending the Centers for Medicare & Medicaid Services (CMS) reports each year from our National Health Expenditure Accounts (NHEA) does not, but should, include all of the tax subsidies provided to support the purchase of private health insurance. As discussed, to incentivize employers to offer health coverage to employees, we exempt employers from income or payroll taxes on ESI. According to the Congressional Budget Office (CBO), this costs us about $250 billion dollars every year and is the single largest subsidy in the U.S. tax code. Just as a point of reference, CBO estimates that the tax subsidy for the home-mortgage interest deduction costs taxpayers only $70 billion per year. While not technically an expenditure under the arcane accounting provisions of the NHEA, tax subsidies are calculable and should be reported as a “cost” of the U.S. health system. When we include tax subsidies, the most recent CMS health expenditure report of $2.9 trillion, or $9,255 per person, is actually closer to $3.2 trillion.

The ACA added subsidies for individuals and families for the purchase of “affordable” health insurance. The law provides premium tax credits and cost-sharing reductions for those earning up to 400% of the federal poverty level (individuals making $47,080 and families of four with incomes up to $97,000 per year). This year, most of the nearly 12 million people who signed up for coverage through the health benefit exchanges were eligible for these subsidies.

The ACA subsidies are simply the latest example of filling the gaps in our private system with government-sponsored healthcare programs. In the end, taxpayers are paying for their own healthcare and an ever-increasing portion of care received by many others who cannot afford the system we set up. Government-sponsored programs now make up 52% of what we spend on healthcare. No wonder all of the healthcare stocks rallied when the Supreme Court ruled in favor of the government on the ACA.